US Slow down hits Infosys

Tuesday, April 15, 2008 | | |

Infosys Technologies on Tuesday posted a lower-than-expected fourth-quarter net profit as the US economic slowdown led clients in its biggest market to pare spending.

The Bangalore-based company's net profit rose 9.2 percent to Rs 1249 crore ($312.44 million) in the three months ended March 31, from Rs 1145 crore a year earlier, Infosys said in a statement.

Infosys, whose profit fell short of analyst estimates of Rs 1260 crore, and its peers have been bracing for a cut in the technology budgets of US clients beleaguered by the credit crunch in the world's biggest economy.

An Infosys survey showed that as many as 76 percent of customers in the US, which provides two-thirds of the revenue earned by Indian software makers, planned either to cut budgets or leave them unchanged.

"US companies are passing through a corridor of uncertainty as they come to terms with the slowdown, or recession, in the US economy," said Tejas Doshi, an analyst at Mumbai-based Sushil Finance.

"They have not been able to decide on their budgets," Doshi said. "New project starts and business starts have been delayed because of the uncertainty, which has definitely impacted Indian software firms."

The slowdown offset higher revenue that may have been contributed by the 40 clients that Infosys added during the quarter. Revenue rose by a fifth to $1.136 billion.

"There could be short-term challenges due to global economic uncertainties," chief executive officer Kris Gopalakarishnan conceded.

But he added: "We as a company see significant growth opportunities in the medium-to-long term."

Companies such as Infosys and bigger rival Tata Consultancy have benefitted in the past decade from work farmed out by companies in the US and Europe that sought to cut costs by tapping India's low-cost engineering talent pool.

They are hoping that clients, once they weigh the US economic situation, would send more work to low-cost locations such as India. Simultaneously, Indian companies are trying to win more non-US business.

"The pricing environment remained stable during the quarter," Infosys chief operating officer S D Shibulal said. "We continue to see greater growth opportunities in Europe."

For the year to March 31, 2009, Infosys forecast revenue to increase by as much as 21.1 per cent, and earnings per share to rise by up to 18.3 per cent, within the range of analysts' expectations.

The company also said it would increase its dividend payout ratio to as much as 30 percent of net profit, from 20 percent, starting this fiscal year.

For the year ended March 31, Infosys will pay a final dividend of 7.25 rupees per share amounting to 4.15 billion rupees and a special dividend of 20 rupees per share, adding up to 11.44 billion rupees.

The special dividend was to celebrate Infosys achieving one billion dollars in net profit during the year, said chief financial officer V Balakrishnan.

That helped Infosys shares rise Rs 54.55, or 3.83 percent, to Rs 1,477 in early trade on the Bombay Stock Exchange.

Shares of Infosys and other software firms plunged last year amid the Indian rupee's 12.3 percent jump against the dollar that dented export revenue, rising costs and the looming US slowdown.